buyers

Short Sale vs. Bank-Owned, What’s the Difference?

Short Sale vs. Bank-Owned, What’s the Difference?

Here’s a short lesson on the difference between buying a bank owned property and buying a short sale.  In today’s market the number of both available has dropped slightly, but there are still plenty of opportunities if you know where to look.

Bank Owned Properties (REO)

The property is owned by a local bank or a national mortgage servicer ( from hereon I’ll use the term Bank). All negotiations are made between a Buyer and an employee of the bank (as opposed to a homeowner). REO properties are almost always vacant and utilities may be turned off.

Standard offers to purchase are used in addition to the required Bank’s addends and disclosures. Consideration ($) will need to be in the form of a cashier’s check (no personal checks). Proof of funds for the down payment and a current loan pre-approval for the balance will also need to accompany an offer. Offers must be complete, correct and filled out according to the bank’s requirements. Do not submit offers that are not in compliance, they will be rejected by the bank or delayed until corrected regardless of the price being offered.

Your opinion of value and the Bank’s may differ, but before a Bank forecloses they have at least one local broker provide an opinion of value. Once they decide to sell the property, they have their listing broker determine if the opinion of value is still correct. The Bank is almost always pricing near market and is expecting to sell the property close to the asking price. Your Buyer’s Agent will give you a comparable market analysis (CMA) for the property prior to your making an offer. If you both feel that the asking price is well over market you should provide that CMA to the listing broker along with the offer. The lender has no obligation to see your CMA and frankly, they don’t care anyway. But if your CMA includes recent sales or similar properties that might not have been included in the original opinion of value, a strong listing broker just might be able to make your case to the Bank.

You may receive an answer within hours or it may take up to a week, but the response time should be fairly quick. Don’t get impatient with the listing broker, they do not have any control over the response time no matter what time frame you put in the offer for acceptance. The best approach is to ask the listing broker for an approximate length of time needed for response and use that in your offer. If the offer is for less then the asking price do not be surprised if the response is an outright rejection or a “best and final” counter offer. Banks are not in the business of owning properties, they are in the business of lending money, but any decision they make will be strictly business. If the offer is a solid offer (close to asking price with minimal contingencies and quick closing date) it may get accepted without a counter.

If your offer is accepted it is unlikely that the Bank will make repairs so an “as-is” sale should be assumed, and you should look the property over very thoroughly before you make an offer. If a few repairs need to be made to facilitate FHA or Conventional financing the Bank might be willing to make them so don’t be afraid to ask, but support any request with a hard quote from a licensed tradesman. If the house is a fixer-upper or a tear-down or in poor condition, (in today’s market ) traditional lenders probably will not lend on the property, so don’t waste your time submitting an offer using an FHA (95-97%) loan. Also, many banks are beginning to have penalties for closings that run beyond the set date so make sure your lender can perform in that time frame and that you do nothing to hold them up.

In summary, REO property sales are very much like conventional sales, just remember you are negotiating with a disinterested 3rd party, not a traditional homeowner, and that any deal you make will be “just business”.

Short-Sales

With short sales the property is owned by a homeowner and the house may be occupied by an owner/tenant or it may be vacant. The owner is “under-water”, the sales price less closing costs is less than the debt(s) on the property and any offer needs lender(s) approval even though the lender(s) might not even know that the property is for sale.

A standard offer to purchase is used, which should include an addendum acknowledging and accepting the fact that this is a short-sale transaction and requires 3rd party approval. Consideration ($) can be a personal check and a current loan pre-approval for the balance will also need to accompany an offer.

Unlike a Bank owned REO, the listing price for the property may be based on something other than facts. The seller might be pricing it low to encourage multiple offers. They might be pricing it high to try to recoup as much money as possible. In rare cases it might be priced correctly. Unless the listing broker tells you they have an “approved” short sale (and even if they do it might be “stale” and will need to be updated at the time of your offer), the lender has not approved a sale at the list price so a Buyer doesn’t know if his offer even at list price will be accepted. Again, your Buyer’s Agent will produce a CMA market analysis to determine the value of the home before you make an offer. It is always good to submit this with your offer because even though the listing price may be based on something other than facts your offer should be based completely on facts. Closings can occur within 30 days but the 30 day clock will not start until the lender gives their approval.

In the beginning, your offer is handled like it would in a non-short-sale situation. The listing broker will present it to the seller and they approve it. It will then be forwarded on to the lender for their approval at which point the listing broker and the Buyer have no control over the process and is in a “wait and see” mode. This approval process may take one week or it may take up to three months. One very important thing to keep in mind is that while you are waiting for an approval of your offer another department of the Bank is working on the foreclosure and may actually foreclose on the property even though there are offers in for approval. If that happens, your deal is dead and the listing contract is terminated as the former seller is no longer the owner of the property and does not have authority to sell. If that happens and you are (still) interested in purchasing the property, you should work with your Buyer’s Agent to follow-up on the property when it comes back on the market as a REO.

Again, an “as is” sales should be assumed, but there may be a little more wiggle room than with a REO. Also, while it might be nice to have repairs made, the seller most likely won’t have the resources to make them and their lender is very unlikely to do so since they don’t own the property, so when you look at the property you should look it over very thoroughly before you make your offer and take into account any obviously needed repairs.

In summary, short sales are not at all like conventional sales, you are dealing with a broke seller, an uncaring bank, and probably a neglected property so you should wade into this swamp slowly and carefully and assume the worst – it probably will happen.

Can you buy/sell a house with a failed septic system?

Can you buy/sell a house with a failed septic system?

Although they are very common in Metrowest, not all homes have septic systems. A system that no longer functions as designed is considered “failed” and while they are always problematic,  they can be incorporated into a real estate sale and get you to the closing table in one of three ways.

First, you can undertake the work and complete it prior to closing, with a full sign-off from the Board of Health in the form of a Title 5 Certificate of Compliance. This is often the preferable course for all parties and a lender, if any, and this option will get you the highest selling price for your home. You will need a design and this takes time for testing holes and design approvals so plan accordingly. If you’re short of funds, some septic installers will begin and complete the work slightly before the closing date and get paid out of the seller funds at the closing. This would require you to agree to release the funds directly to the installer at the closing.

Alternately, Title 5 does not require that a system be in passing condition prior to the sale, but most lenders will not issue a mortgage until the failing system is upgraded or funds to perform the upgrade are escrowed.

So you and the Buyers can agree to put an appropriate amount of money in escrow guaranteeing that the system will be installed after the closing. The usual formula for calculating this amount is taking the median of three bids plus a 50% contingency reserve. Most installers are able to give solid estimates based on a design, but they will charge more it they hit ledge, or other unforeseen conditions, so the contingency is there just in case. Again, this would require you to agree to release the funds from the closing to the escrow account. The escrow funds are usually held by the bank’s conveying attorney who will pay the bill for the septic when it’s completed, and then return any extra money to you. Many lenders don’t allow septic hold-backs at all, so this option, while an excellent solution if you’re tight for funds, might limit your pool of buyers and thus extend your time on market, but it won’t affect the price you’ll get for the home. Here’s an example of how this might work: A home is on the market for $300K with a failed Title 5. A buyer agrees to purchase the property, and they both agree to put the septic repair money in escrow. The median estimate is $30,000 for the system. The buyer, at the closing, pays the seller 300K, and the seller then pays of his mortgage (100K, for example) and then takes 150% of the 30K ($45,000) and puts that in escrow with the closing attorney. The seller leaves the closing table with $155,000. The buyer then has the new system put in place, and it only costs $30,000. The buyer sends the bill to the closing attorney, who pays the installer, and refunds the difference ($15,000) to the seller. There are variations on how this unfolds, but this would be a typical scenario.

A third option would be to get the buyer to pay for the septic system, although this is less likely to occur. A buyer who agrees to assume the cost of replacing the septic system will factor the cost of replacement plus a contingency factor into his bid price for the property. If it costs less than he planned, he pockets the difference. This would most likely have to be a buyer who can pay cash for your home. Most municipalities will allow him up to a year to fix the septic system and update the Title 5. But if the septic system isn’t working, the Board of Health can require that nobody will be living there. Not many people can buy properties with cash, so counting on this option will severely restrict your buyer pool, exponentially lengthen your market time, and ultimately get you less money for your home. So, in summary, bottom line … marketing your home with a failed septic system will affect the property’s value and restrict the pool of buyers, but it has been done many times successfully and with the right agent (shameless plug for “me”) you can do it too.

Do You Really Need a Home Inspection? … Absolutely!!

Do You Really Need a Home Inspection? … Absolutely!!

It may seem simple, but there are a lot of buyers/sellers who don’t know what rights they have as consumers regarding the types of home inspections they can conduct. Below are explanations of the various types of home inspections and their implications to you.

What is involved in a Home Inspection, and why is it done?

Once you have found a house you like and have agreed on a price with the seller, you have the right to have the house inspected by a licensed home inspector.

Your offer to purchase will specify the time period in which you can have the inspection done, called the “home inspection contingency clause”. In all cases, you pay the inspector and the inspection report is your property, not the sellers’.

The purpose of a home inspection is to identify major problem areas and significant defects or safety issues in the house that are not obvious to you during your showings with your realtor, such as with the roof or heating system.

It should not be used as a “laundry list” for the seller to address every item that comes up – every house that is not new and has been lived in will have minor items of note.

If there are areas of concern to you, you have to notify the seller in writing prior to the expiration of your “home inspection contingency clause” in the offer. Once this is done, your agent will help you negotiate with the seller to address them. Most sellers are willing to work with you on this.

The results of this negotiation may be: a change in the house price; the seller having repairs made prior to closing; or a credit to you at closing for you to have the repairs made with your own vendors. In extreme cases, you may decide to cancel your offer and withdraw from the contract to purchase the home.

How do I find a good home inspector?

The Massachusetts Board of Registration maintains a website of Home Inspectors whose qualifications have been evaluated and granted licensure. The board publishes the list of licensed home inspectors on their website.

This link should take you there. If not, copy and paste it into your browser and hit enter.

Click Here for Information About Home Inspectors

You should contact friends and relatives for personal references and check them against the list.

Can you recommend a good home inspector?

If I’m representing you as a seller’s or buyer’s agent you can call me for recommendations.

I have several with whom I have no business affiliation but from personal experience would recommend for their proven commitment to excellence.

Call me at 978-580-1069

Lead Paint Testing & Certification

Especially important if the property was built before 1978

How do I know if a house has lead paint?

Lead paint disclosures are required to be provided to all buyers and sellers of property constructed prior to 1978. The property transfer notification certification form discloses property condition regarding lead poisoning hazards; requires signatures of the seller, agents and prospective buyers before signing a purchase and sale agreement.

Where can I find out about lead paint inspectors?

The lists of Massachusetts lead paint inspectors and private risk assessors are published by the Massachusetts Department of Public Health.

This link should take you there. If not, copy and paste it into your browser and hit enter.

Click here for Info on the Lead Paint Law

Scroll to the bottom of the page and click on Massachusetts Licensed Lead Inspectors (PDF)

Mold and Real Estate

Common in the environment but it can harm you

What is mold (fungi)?

Molds, yeasts and other certain related forms constitute the organisms known as fungi. We have all seen fungi growing on rotten fruit, bread and damp leather. They may by green, black or white and may appear to be fuzzy or sooty.

Fungi are plant-like & many consist of two parts – hyphae, which are fungal filaments that form the body – and spores, which are seed-like structures than can be used for reproduction. Some spores contain mycotoxins and have been termed “toxic mold”.

Fungi must subsist on organic matter such as wood or paper products. In order for fungi to thrive, the following conditions are necessary: An ambient temperature range of 40-100 degrees F; a humid rich environment, generally greater than 60% humidity though usually greater than 70%.

Mold is ubiquitous in nature, making up approximately 25% of the earth’s biomass, and thrives in many outdoor environments.

Why is mold in real estate a potential concern?

Mold (microbial agents) may cause four main types of illnesses in humans: allergies; irritation; infectious disease; & toxic effects. Microbial agents may serve as irritants to the respiratory tract causing an increase in mucus flow and other types of symptoms. These agents may cause infections in two manners: pathogenic infection – this can develop in a relatively healthy individual with a normally functioning immune system; and opportunistic infection – this can develop in an individual with a compromised immune system or those with or on chemotherapy, diabetics, asthma or antibiotics, HIV or AIDS, physical or mental conditions affecting the immune system. Some factors responsible for the concerns are the ability of the agent becoming airborne in sufficient concentrations and the ability of the agent to be respired by the susceptible host.

Are there any buildings more vulnerable to mold growth?

Any dwelling with a history of current water infiltration problems as well as those structures with consistently high indoor humidity levels or those with poorly designed components such as inadequately vented attics and crawl spaces, as well as poorly designed or maintained HVAC systems.

How do I know if mold is present within a dwelling?

Mold growth should be suspected when surfaces are discolored i.e. “mildew” or if damp mildew odor is present which can represent mold by-products such as – microbial volatile organic compounds (MVOC’s). This is especially true on organic surfaces.

If mold growth is suspected what should be done?

A trained indoor environmentalist or certified industrial hygienist should be consulted to determine the presence of mold, its cause and cure.

Are there any threshold limits in which mold is a concern?

Because all individuals have varying degrees of sensitivity to mold there are currently no threshold limit values.

What is toxic mold?

Toxic mold refers to certain mold species that have spores that contain mycotoxins such as stachybotrys. Mycotoxins are opportunistic pathogens and may be a greater health concern for certain individuals.

If mold growth is confirmed within the indoor environment what should be done?

Depending on the amount and depth of the mold growth, the solutions may range from removing surface mold via HEPA vacuuming and washing. To the extreme of removing and replacing all effected material, it is strongly suggested that only those with specific training and experience conduct any mold remediation work.

How can mold growth be prevented?

Mold requires several conditions to thrive. An organic material (wood or paper), oxygen, appropriate ambient temperature, a high moisture content and/or a high ambient relative humidity of 60% or greater. The most controllable factor of these conditions is the moisture content, which is usually controlled by removing moisture sources (water infiltration) and reducing and maintaining the indoor ambient humidity level to below 60%. Long story short … ventilation, ventilation and ventilation.

Need an expert?

Call me, I can recommend several.

Radon Testing & Certification

Common in the environment but it can harm you

What do I need to know about radon in the air in my basement?

Radon gas in the air is of concern to any homeowner. It tends to collect in basement areas, and if you have a finished basement where you spend a lot of time you should have the air tested.

Should your house test at or above 4.0 picoCuries per Liter there are excellent, relatively inexpensive mitigation systems that can be installed to permanently keep the level below that threshold.

The link below takes you to one of the most comprehensive sites I’ve found and should answer all your questions.

Click Here for Info on Radon in Air

What do I need to know about radon in my well?

Radon gas in the water is of concern only to homeowners with drinking water supplied by on-site (i.e. private) wells.

The threshold varies widely from state to state, and the EPA has proposed (for community water supplies only) a “Maximum Contaminant Level” of 300 picoCuries per Liter, and a more achievable “Alternate Maximum Contaminant level” of 4,000 picoCuries per Liter.

Should your well test at or above 20,000 picoCuries per Liter (the standards are vague, but this is a commonly suggested threshold) there are excellent mitigation systems that can be installed to permanently keep the level below that threshold. The systems are quite expensive and noisy.

The link below takes you to one of the most comprehensive sites I’ve found and should answer all your questions.

Click Here for Info on Radon in Water

Certificate of Compliance, Massachusetts Title 5  Private Sewerage Systems

Protecting our water supplies when properties are sold, modified or change uses

What is Title 5 and what does it mean to me?

On-site disposal systems, including septic tanks and cesspools, provide an effective means of treating household sewage. However, older, poorly designed systems, inadequate maintenance and many other conditions can affect the performance of such systems. Ineffective treatment of sewage can threaten the environment by polluting local wetlands and groundwater supplies; moreover, failing systems can harm public health by exposing residents to harmful microorganisms carried in wastewater.

For these reasons the Commonwealth of Massachusetts health division implemented a comprehensive septic management program known as Title 5.

Whenever a home is sold, or if there is a change in use, (i.e., a single family residence is converted to a multi-family or to a business) or a building is added onto or substantially modified, an inspection is necessary to ensure that the system is adequate for the new use and that that no part of the system will be covered by a change in the building’s footprint.

If the house has public sewers do I need Title 5?

Title 5 is only of concern to buyers and sellers of property serviced by private sewage disposal systems.

Does the Board of Health do Title 5 Inspections for homeowners?

No. All subsurface disposal systems must be inspected by a State-licensed inspector whenever real estate is sold to ensure that the system is functioning properly. Individual homeowners must hire their own inspector.

What happens if my waste disposal system fails inspection?

If the subsurface disposal system fails an inspection, the owner normally has up to two years in which to correct the problem.

However, the Board of Health may require that the owner address the problem within a shorter period should the failing system present a threat to the public health and the environment.

If the property is sold within this time period without correcting the problem, the new owner assumes responsibility for the failed septic system.

If my system fails, am I required to connect to sewers or replace it?

Title 5 requires that owners of septic systems meet the standard of “maximum feasible compliance” with the requirements of the State Code. The level of compliance that may be met–that is, whether the system is simply repaired, replaced, or the home connected to the sewer–will depend on the characteristics of the property involved. If town sewer is not available near the home, the homeowner must apply to the Board of Health for approval of a design for a new system that meets the requirements of Title 5.

How do I know the system has passed?

The inspection reports are submitted to the town Board of Health where they are reviewed, approved & filed and a Certificate of Compliance is issued. You should request a copy of this from the sellers via their agent after your offer has been accepted.

Does the system have to be pumped in order to pass a Title 5 inspection?

The law does not require that the system be pumped for inspection. However, unless the inspection is conducted by the company that regularly services the system and checks it annually during standard pumping, any results that do not include pumping may be suspect. As part of your home inspection rights, you can have your own title 5 inspection at your cost during the inspection period if you are concerned about the seller’s inspection.

Where can I find more information on Title 5?

The best source for information on this topic is the Massachusetts Department of Environmental Protection. They have available on their website certain informational materials explaining Title V regulations.

This link should take you there. If not, copy and paste it into your browser and hit enter.

Click Here for Information about Title 5

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